Correlation Between First Trust and Technology Select

Can any of the company-specific risk be diversified away by investing in both First Trust and Technology Select at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining First Trust and Technology Select into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Trust Technology and Technology Select Sector, you can compare the effects of market volatilities on First Trust and Technology Select and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in First Trust with a short position of Technology Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Technology Select.

Diversification Opportunities for First Trust and Technology Select

0.93

Correlation Coefficient

First Trust  Technology Select

Almost no diversification

The 3 months correlation between First and Technology is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Technology and Technology Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Select Sector and First Trust is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on First Trust Technology are associated (or correlated) with Technology Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Select Sector has no effect on the direction of First Trust i.e., First Trust and Technology Select go up and down completely randomly.

Pair Corralation between First Trust and Technology Select

Considering the 90-day investment horizon First Trust is expected to generate 1.24 times less return on investment than Technology Select. But when comparing it to its historical volatility, First Trust Technology is 1.01 times less risky than Technology Select. It trades about 0.08 of its potential returns per unit of risk. Technology Select Sector is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  13,312  in Technology Select Sector on August 23, 2024 and sell it today you would earn a total of  10,036  from holding Technology Select Sector or generate 75.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

First Trust Technology  vs.  Technology Select Sector

First Trust Technology

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Technology Select Sector

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with First Trust and Technology Select

The main advantage of trading using opposite First Trust and Technology Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Technology Select can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Technology Select will offset losses from the drop in Technology Select's long position.

The idea behind First Trust Technology and Technology Select Sector pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.